Economic Survey of Israel 2013

Israel’s output growth has been impressive, considering global economic weakness, and the output gap is close to zero in contrast to much of the OECD area. The unemployment rate is at a 30‑year low, and labour force participation has been rising steadily. Furthermore, new natural gas fields have provided an additional boost to GDP in recent quarters. Substantial public spending cuts and revenue‑raising measures legislated in the latest government budget are set to bring fiscal balances back on target for this year and next. However, staying on track with consolidation beyond this will remain challenging. In the monetary domain foreign‑currency purchases have resumed, and macro‑prudential measures have been needed to contain potential financial risks associated with the surging housing market.

Considerable room remains to improve average living standards and to lower poverty, particularly among working families with children, including the Arab‑Israeli and Ultra‑orthodox (Haredi) communities. Furthermore, the middle‑class concerns that surfaced in the 2011 ‘tent protests’ remain prominent, notably housing costs, high retail prices and the associated dissatisfaction with the degree of competition in the economy, the role of large family‑run business groups and the distribution of the tax burden. These issues were echoed in the January 2013 general election, which saw the formation of a governing coalition that included two new political parties created in the wake of the protests.

This Survey examines macroeconomic and structural policy issues in this complex conjuncture. Shifts in strategy on taxation in response to the fiscal difficulties, political developments and ongoing socio‑economic problems have prompted an in‑depth review of the tax and transfer systems (Chapter 1). Israel’s health‑care system, which faces severe future human resource problems alongside more typical challenges in delivering quality health care in the context of constrained budgets and aging populations is then examined (Chapter 2). These chapters build on previous Surveys’ in‑depth assessments: welfare and education in 2010 and housing, finance and energy in 2011 (OECD, 2010 and OECD, 2011a). The policy analysis in this Survey does not cover the territories known as the Gaza Strip, the Golan Heights or the West Bank including East Jerusalem.

The gap measures how far below (in percentage terms) Israel’s GDP per capita (or per hour worked) lies in relation to the unweighted average of the top half of the OECD distribution. An upward sloping line indicates that the country is catching up with better performing countries.

The share of individuals with "equivalised" disposable income less than 50% of the median for the entire population based on weighting household members according to the square root of household size. The reference years vary by country. The greater the value, and the higher the line, the greater is the rate of poverty.